Sonova Faces Probe Over Profit Warning After Insider Sales

March 30 (Bloomberg) -- Sonova Holding AG, the Swiss maker
of the Lyric hearing aid, said stock-exchange authorities are
investigating a profit warning given to investors eight days
after the chairman sold 300,000 shares.

Sonova issued the warning too late and failed to impose a
timely blackout period that would prohibit company insiders from
trading shares and options, Robert Spoerry, the new chairman,
said at a press conference in Zurich today. An independent probe
commissioned by the board over the last two weeks found no
evidence of insider trading, he said.

“We were late and we are fully prepared to cooperate with
the authorities,” Spoerry, 56, said in an interview after the
press conference.

The Zurich Prosecutor’s Office said last week that it is
considering an inquiry into share sales by directors and
executives at the Staefa-based device maker. The Swiss
government in January proposed stricter laws on insider trading
and market manipulation, which would apply to a broader group of
people. The proposals would bring Switzerland into line with
European Union laws, the government said.

“There are still people in corporate Switzerland who lack
the sensitivity on what is acceptable and what isn’t,” said
Monika Roth, an attorney specializing in corporate law in
Binningen, Switzerland. “There are still some shortcomings when
it comes to insider information and compliance, and it’s good
that the prosecutor is looking at this.”

Shares Fall

Sonova fell 10.9 francs, or 12 percent, to 82.4 in Zurich,
giving the company a market value of 5.4 billion francs ($5.9
billion). The stock is at its lowest since June 2009. The shares
have dropped 38 percent in the last year.

Chief Executive Officer Valentin Chapero, who had led the
company since 2002, and Oliver Walker, Sonova’s chief financial
officer, resigned and Chairman Andy Rihs will step down from his
post while remaining on the board, the company said today.

Alexander Zschokke, 46, a member of the group management
board who leads retail activities, will be interim CEO and Paul
Thompson, 44, a former CFO for the company who went on to
oversee strategy and acquisitions, will serve as interim CFO,
Sonova said.

Sonova cut its profit and sales forecasts on March 16,
citing the November recall of its Advanced Bionics hearing aid
and regulatory difficulties that slowed the introduction of
Phonak hearing aids in the U.S.

The stock plunged 23 percent to 89.15 Swiss francs that day
after the company cut sales and profit forecasts for the year.
Rihs sold 300,000 shares on March 8, the company said today. An
executive board member sold 800 shares at 127 francs each on
March 4, according to notices of transactions on the SIX Swiss
Exchange website. The site didn’t name the seller.

‘Good Faith’

Rihs said he made the trades “in good faith” and has
offered to buy back the shares at the original price. He told
reporters at the press conference that he would step down as
chairman to avoid further damage to the company’s reputation.

The Swiss executive should stay on the board because “he
plays an emotional role with the company,” Spoerry said in the
interview.

Rihs joined the company in 1966, concentrating on marketing
and commercial operations, and developed a global distribution
network. He has been chairman since 1992, and was CEO until
April 2000, according to the company website.

Rihs formed the hearing-aid maker, then known as Phonak
Holding AG, in 1985 from a previous company owned by his father,
Ernst, who died in 1980, according to Sonova’s website. He also
owned the Phonak cycling team, which disbanded in 2006 after
member and Tour de France winner Floyd Landis failed drug tests.

High-End Hearing

The company changed its name to Sonova from Phonak in 2007.
It employs more than 7,200 people worldwide as of Sept. 30 and
had annual sales of 1.5 billion francs in fiscal 2010, according
to Sonova’s website. Sonova specializes in high-end hearing aids
with wireless communication systems. It advertises its Lyric
hearing aid as “the contact lens for your ear.”

Rihs’s term on the board expires next year. He had planned
to step down this year or next, he said in a 2009 interview with
Cash. Two weeks before that, Sonova agreed to buy Advanced
Bionics Corp., the U.S. maker of the recalled cochlear implant,
for $489 million.

Stock Trades

Company directors and managers sold about 2.4 million
shares and warrants between Feb. 1 and the issuance of the new
forecast, according to the SIX Swiss Exchange website.

Rihs sold the 300,000 shares at 125.07 francs each, for a
total of 37.5 million francs, according to the exchange website.

“You have to wonder whether the chairman of the board
didn’t know how the business is doing, and if so, how is that
possible?” said Roth, the corporate attorney in Binningen.

Swiss law already makes it illegal for company managers,
board members and public officials to abuse confidential
information for their own financial gain and sets a maximum
three-year prison term for the offense. The Swiss exchange can
also fine companies that are too late to publish relevant
information. A consultation period on the government’s proposed
changes is set to end April 30.

Internal Probe

Stephan Meier, a stock-exchange spokesman, said he couldn’t
confirm that preliminary investigations of Sonova have begun,
citing exchange policy.

“The SIX Swiss Exchange Regulation is continuing to
monitor Sonova’s activities and we note the company’s statement
today regarding the delay of the March 16 profit warning,”
Meier said by e-mail.

An internal probe by the Zurich-based law firm Homburger AG
reviewed more than 200,000 company e-mails and didn’t reveal any
evidence that Rihs knew that profit warning would be published a
week later, Spoerry said.

The transition of the management team creates an
opportunity for competitors to gain market share, Jefferies
International Ltd. analysts including Ingeborg Oie wrote in a
note today.

“It’s quite unusual that all three key people would leave
at the same time,” Oie said in an interview.

The company said it’s still estimating any additional costs
related to the events.